Critical State Housing Laws Approved by Governor Newsom

Governor Newsom recently approved multiple state housing bills passed by the State Assembly and Senate.  The following is a summary of a few of the key bills that are expected to benefit multi-family, mixed-income housing developers.

Senate Bill 423 – Expansion and Extension of Senate Bill 35

Governor Newsom signed SB 423 (Wiener) into law on October 11, 2023. SB 423, which goes into effect on January 1, 2024, extends the sunset provision for and makes other substantive changes to SB 35 (Wiener, 2017) (codified at Government Code section 65913.4). As explained in our prior legal alert, SB 35 provides for a streamlined ministerial (i.e., no CEQA) approval process for qualifying housing development projects in local jurisdictions that have not made sufficient progress towards their state-mandated Regional Housing Needs Allocation (RHNA), as determined by the California Department of Housing and Community Development (HCD).

SB 423 expands SB 35 to apply when a local jurisdiction fails to adopt a housing element in substantial compliance with state housing element law (regardless of RHNA progress), as specified and as determined by HCD. Under that circumstance, prior to calculating any density bonus, at least 10% of the dwelling units would need to be designated as very low income (rental) or low income (ownership), as defined, subject to any local ordinance requiring a higher percentage. Alternatively, in the San Francisco Bay Area (as defined), a minimum of 20% of the units could be designated as (lower) moderate income, as defined, subject to any local ordinance requiring a higher percentage or deeper level of affordability. SB 423 is expected to result in the increased production of multi-family, mixed-income housing since, as explained in our prior legal alert, multiple local jurisdictions are currently out of compliance with the state housing element law and could be out of compliance in future housing element cycles.

SB 423 also targets the City and County of San Francisco by increasing the frequency of its RHNA reporting period to every year, beginning in 2024. If HCD determines that San Francisco has not made sufficient progress toward its above-moderate income RHNA by that deadline, projects designating at least 10% of the units as affordable (versus 50%) would qualify for streamlined ministerial approval under SB 35, provided that all other applicable requirements would be met. According to this San Francisco Housing Needs Assessment, compared to the 2015-2023 reporting period, the total RHNA for San Francisco increased by 184% for the current 2023-2031 reporting period — including a target of 35,471 above-moderate income units (4,434 units annually).

To summarize, SB 423 also amends SB 35 as follows:

• Extends the sunset on SB 35 by ten years (from January 1, 2026 to January 1, 2036).
• Revises the coastal zone development prohibition to allow for projects in specified urban coastal locations (e.g., property not vulnerable to five feet of sea level rise or within close proximity to a wetland) where the property is zoned for multi-family housing and is subject to a certified local coastal program or a certified land use plan.
• Revises the fire hazard severity zone development restriction, as specified.
• Removes skilled and trained workforce requirements for projects below 85 feet in height and imposes modified skilled and trained workforce requirements, as specified, for projects at least 85 feet in height (as measured from grade).
• Requires projects with 50 or more dwelling units and using construction craft employees to meet apprenticeship program requirements and provide health care expenditures for each employee, as specified.
• Revises the required affordability level where at least 10% of the units must be designated as affordable (i.e., where a local jurisdiction has not made sufficient progress toward its above-moderate income RHNA) for (i) rental projects — from lower income (at or below 80% AMI) to very low income (at or below 50% AMI) and (ii) San Francisco Bay Area projects where moderate income units would be provided — from below 120% AMI and a required average of at or below 100% AMI to below 100% AMI and a required average of at or below 80% AMI.
• Requires determinations regarding compliance with applicable objective planning standards (as defined) to be made by the planning director (or any equivalent local government staff).
• Prohibits local governments from requiring compliance with any standards necessary to receive a post-entitlement permit (as defined) or other information (including technical studies) that do not pertain directly to determining whether the housing development project is consistent with applicable objective planning standards.
• Removes the planning commission (or equivalent board/commission) public oversight hearing provision (but retains the design review provision).
• Provides for the inclusive calculation of the total number of dwelling units for purposes of meeting SB 35 requirements where there are multiple projects on the same project site or on a site subdivided from a prior SB 35 project site, as specified.
• Clarifies that if a local affordable housing ordinance requires units that are restricted to households with incomes higher than the SB 35 income limits, then the units that meet SB 35 income limits shall be deemed to satisfy the local requirement.

Senate Bill 4 – Affordable Housing on Faith and Higher Education Lands Act of 2023

Governor Newsom signed SB 4 (Wiener) into law on October 11, 2023. SB 4 provides for a streamlined ministerial (i.e., no CEQA) approval process for qualifying housing development projects, notwithstanding any inconsistent provision in the general plan, specific plan, zoning ordinance, or other regulation. The land must be owned on or before January 1, 2024, by an independent institution of higher education or a religious institution, as defined.

To qualify, 100% of the units must be designated as affordable, exclusive of (i) manager units (no limit) and (ii) units allocated to staff of the institution that owns the land (up to 5% of the units). At least 80% of the housing units must be designated as affordable to lower income households (as defined) and up to 20% of the units may be designated as affordable to moderate-income households (as defined). The project must also satisfy most of the project site requirements already set forth under AB 2011 (operative as of July 1, 2023), as specified and modified by SB 4. For example, rather than flatly prohibiting housing units within 500 feet of a freeway (per AB 2011), SB 4 requires that specified air filtration must be provided for regularly occupied areas of the building.

Prevailing wages must be paid, and if the project consists of 50 or more dwelling units, health care expenditures and an apprenticeship program must be provided for construction craft employees, as specified.

SB 4 will sunset on January 1, 2036, unless extended before that date.

Assembly Bill 1287 – Additional Density Bonus under State Density Bonus Law

Governor Newsom signed AB 1287 (Alvarez) into law on October 11, 2023. AB 1287 amends the State Density Bonus Law (Government Code section 65915) by incentivizing the construction of housing units for both the “missing middle” and very low income households by providing for an additional density bonus, and incentive/concession for projects providing moderate income units or very low income units.

First, the project must provide the requisite percentage of on-site affordable units to obtain the maximum density bonus (50%) under prior law: 15% very-low-income units, or 24% low-income units, or 44% moderate-income (ownership only) units (the “Base Bonus”). Second, to qualify for an additional density bonus (up to 100%) and an additional incentive/concession under AB 1287, the project must provide additional on-site affordable units, as specified (the “Added Bonus”). The Added Bonus may be obtained by adding moderate-income units to either a rental or ownership project, but that is capped at a total maximum of 50% moderate-income units. To illustrate:

• Rental Project. If the project includes 24% low-income units (50% Base Bonus) and 15% to 16% moderate-income units (50% Added Bonus), the project would now qualify for a 100% density bonus and three to four incentives/concessions, respectively.
• Ownership Project. if the “base” project includes 44% to 45% moderate-income units (50% Base Bonus) and 10% very-low-income units (38.75% Added Bonus), the project would now qualify for an 88.75% density bonus and three to four incentives/concessions, respectively.

Assembly Bill 1633 – Expansion of Housing Accountability Act Protections: CEQA

Governor Newsom signed AB 1633 (Ting) into law on October 11, 2023. AB 1633 closes a loophole in the Housing Accountability Act (HAA) (Government Code section 65589.5 et seq.) by establishing when a local agency’s failure to exercise its discretion under CEQA, or abuse of its discretion under CEQA, constitutes a violation of the HAA.

There have been instances where HAA-protected projects have been stymied by a local agency’s failure to approve or deny a project due to CEQA-related delays. For example, as explained in this letter from HCD to the City and County of San Francisco, the Board of Supervisors’ actions to decertify and remand an EIR back to the Planning Department based on vague concerns “exemplify a pattern of lengthy processing and entitlements timeframes” that “act as a constraint on housing development.”

To qualify under AB 1633, the project must be a “housing development project” under the HAA (see our prior legal alert for more information about the HAA) and meet the following requirements:

• The project site is located in an urbanized area, as defined.
• The project meets or exceeds a dwelling unit density of 15 units per acre.
• The project site is not located in a coastal zone, on certain types of farmland, on wetlands, on a hazardous waste site, within a delineated earthquake fault zone, within a special flood hazard area, within a regulatory floodway, on lands identified for conservation, or on habitat for protected species, as specified.
• The project site is not located in a high or very high fire hazard zone, as specified.

Under AB 1633, the following circumstances constitute “disapproval” of the project, in which case the local agency could be subject to enforcement under the HAA:

• CEQA Exemptions. If (i) the project qualifies for a CEQA exemption -- and is not subject to an exception to that exemption -- under the CEQA Guidelines based on substantial evidence in the record; (ii) the local agency fails to make a determination of whether the project is exempt under CEQA; and (iii) the local agency does not make a lawful determination, as defined, on the exemption within 90 days of timely written notice from the applicant, as specified. The local agency may extend that time period by up to an additional 90 days if the extension is necessary to determine if there is substantial evidence in the record that the project is eligible for the exemption sought by the applicant.
• Other CEQA Determinations. If (i) the project qualifies for a negative declaration, addendum, EIR, or comparable environmental review document under CEQA; (ii) the local agency commits an abuse of discretion, as defined, by failing to approve the applicable CEQA document in bad faith or without substantial evidence in the record to support the legal need for further environmental study; (iii) the local agency requires further environmental study; and (iv) the local agency does not make a lawful determination, as defined, on the applicable CEQA document within 90 days of timely written notice from the applicant, as specified.

AB 1633 does not address potential lead agency staff delays in the preparation of the CEQA document for the project in the first instance. AB 1633 also includes a limited exception to enforcement where a court finds that the local agency acted in good faith and had reasonable cause to disapprove the project due to the existence of a controlling question of law about the application of CEQA or the CEQA Guidelines as to which there was a substantial ground for difference of opinion at the time of the disapproval.

AB 1633 will sunset on January 1, 2031, unless extended before that date.

Assembly Bill 1485 – State Enforcement of Housing Laws

Governor Newsom signed AB 1485 (Haney) into law on October 11, 2023. AB 1485 grants the California Attorney General the “unconditional right to intervene” in lawsuits enforcing state housing laws, whether intervening in an independent capacity or pursuant to a notice of referral from HCD. Under prior law, the Attorney General and HCD were required to petition the court to be granted intervenor status and join a lawsuit, which can be a “lengthy and onerous process.”

Assembly Bill 1307 – CEQA: Population Growth and Noise Impacts

Governor Newsom signed AB 1307 (Wicks) into law on September 7, 2023. AB 1307 is a legislative response to the ruling in a high-profile appellate CEQA case in which the court held that an Environmental Impact Report (EIR) for a UC Berkeley housing project failed to assess potential noise impacts from loud student parties in residential neighborhoods near the campus and did not justify its decision to not consider alternative project locations. (Make UC a Good Neighbor v. Regents of Univ. of California, 88 Cal. App. 5th 656, [2023], as modified [Mar. 16, 2023]). See our prior legal alert for more information about that case.

AB 1307 provides that (i) the effects of noise generated by future housing project occupants and their guests is not a significant impact under CEQA and (ii) the University of California, California State University, and California Community Colleges are not required to consider alternatives to the housing project location in an EIR if specified requirements are met.

Assembly Bill 529 – Commercial to Residential Conversion Projects

Governor Newsom signed AB 529 (Gabriel and Haney) into law on October 11, 2023. AB 529 requires HCD to convene a working group, including the California Building Standards Commission, Energy Commission, State Fire Marshal, Public Utilities Commission, and other stakeholders to “identify challenges to, and opportunities to help support, the creation and promotion of adaptive reuse residential projects statewide while not reducing minimum health and safety standards, including identifying and recommended amendments to state building standards.”

AB 529 is a step in the right direction for commercial to residential conversion projects, but a stronger legislative response is needed to make conversion projects financially feasible. Unfortunately, AB 1532 (Haney) did not make it to the Governor’s desk this legislative session. That bill would have provided for “by right” streamlined ministerial (i.e., no CEQA) approval of qualifying office to residential conversion projects. AB 1532 would have also made new state funding available for qualifying office to residential conversion projects.

According to this article, Senator Wiener plans to introduce a bill in January that would include tax breaks for commercial to residential conversion projects.